One essential aspect of a successful trading strategy is knowing when to sell to maximize profits, which as any experienced trading will tell you, it's more of an art than a science. Trailing Take Profit is a popular rule-based technique allowing traders to maximize profits.
Simply put, a trailing take profit is a dynamic order type that allows you to lock in profits as the market moves in your favor. It works by automatically adjusting the take profit level as the price of the asset moves in your favor, ensuring that you close the position at an optimal price if the market turns. This strategy helps traders avoid missing out on potential gains while providing protection against sudden market downturns.
To better understand how a trailing take profit works, let's consider a hypothetical example using the BTC/USDT trading pair.
Suppose you purchase 1 Bitcoin (BTC) at $50,000 and set a trailing take profit of 5%. This means that if the price of Bitcoin increases, the take profit level will follow the price, always maintaining a 5% gap. If the price of Bitcoin rises to $60,000, your take profit level adjusts to $57,000. If the market then declines and reaches $57,000, your position will be automatically sold, securing a $7,000 profit.
This strategy allows you to capitalize on the upward price movement while still providing a safety net should the market reverse.
Trailing take profit is best used in trending markets, where the price of an asset moves consistently in one direction. It allows traders to capture a significant portion of the trend's gains without prematurely exiting the position.
However, there are also some situations where you may want to avoid it:
You can enable Trailing Take Profit in Trading Bot and Trading Terminal deals under Take Profit section.
Trading tip: a good rule of thumb is to set your trailing take profit deviation between 10 to 25% of your take profit target.